Financial Risk Management

CHAPTER 17Fostering a Culture of Appropriate Conduct Outcomes

CONDUCT RISK CULTURE AND BEHAVIOURS

Do banks really know whether their culture is effective in reducing misconduct? The answer is probably not. Even when banks gather and store behavioural data, they don't know how to make meaningful use of it. It must be acknowledged, however, that culture is not an easily definable concept. The Financial Conduct Authority (FCA) defines culture quite simply as “the habitual behaviours and mindsets that characterize an organization”. It is for firms to identify the drivers of behaviour within the firm and control the risks that these drivers create.

As a regulator, the FCA focuses on four key drivers:¹

• Purpose
• Leadership
• Approach to rewarding and managing people
• Governance

The idea behind this is to determine how effective each of these drivers of behaviour are in reducing the potential harm in firms.² This is not an easy task because each firm's culture is different. There is no one‐size‐fits‐all culture. Our aim here is not to prescribe or promote what an ideal conduct risk culture should be, nor do we believe that every firm should have the same culture. Each firm is responsible for building and maintaining a culture that works in the long‐term interests of itself, its customers and market integrity. It is the responsibility of everyone in the banking industry to promote and deliver healthy cultures to prevent harm caused by inappropriate behaviours.

In his speech at the HKMA ...